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Money. We all need it, we all have it, we all spend it. But what is the difference between those who build fortunes and those who live paycheck-to-paycheck? I wrote a post a couple months ago about basic budgeting, which is where we all should start with our money. You can read that post here.

Once you are living on a budget, it is time to make a plan for spending, saving, and investing. These three actually have a very symbiotic relationship, yet it is very important to recognize the differences between these three.

Spending is necessary for living. Spending is also necessary for buying things that could be termed as investments in their own rights- cars, houses, stocks. Saving is necessary to build up the money for these things. Investing is necessary for creating an income beyond what we can make and save on our own. Investment involves risk.

Here is a broken-down, quick overview of spending, saving, and investing, and how to know when it is time to do each one:

SAVING

Once you are living within a budget, it is time to begin saving. Saving comes first, before spending or investing, and is an important part of making sure you are set up in the most financially secure position you can be. Many well-known financial advisors, including Dave Ramsey (known for Financial Peace University) and Suze Orman (of The Money Book), advise that you build up an emergency cache of savings, from as little as $1000 to as large as one month’s worth of living expenses. Once you have this emergency fund, it is advised to save between 6-12 months of living expenses to have as a buffer between your month-to-month budget and that emergency savings account. Note that if you are regularly delving into your savings account, your budget should probably be reworked. The best way to save is to budget an amount to purposely put aside to save on a monthly basis, although those who live on an irregular income (such as those of us in sales) may find it more realistic to save a portion of bonuses to put aside.

Once you have saved up your regular savings account, it is time to start saving towards your big purchases. Is it time to buy a new car? What about a home? Begin putting aside money monthly to go towards these purchases. If you have been paying off debt, you can apply the amount you were spending on debt every month towards these saving funds, once you finish paying off the debt.

SPENDING

Spending…it’s fun to spend with wisdom. It’s time to spend when you saved the amount you have planned on having for a car or home or vacation. Spending is a time of enjoying the fruits of your labor, and when you spend after you have saved, it is both guiltless spending and very rewarding. The key to happy spending is to only spend what you have set aside to spend. Do your best to spend without touching your regular savings account or using credit, and you will find that spending becomes much less stressful.

INVESTING

With staggering statistics like 76% of Americans living paycheck-to-paycheck, it is no wonder that so few people know anything about investing. Investing separates the boys from the men. While everyone tried to save and spend, investing can actually change the way you live. Investing in stocks and beginning to get dividends can have a huge impact on one’s life, and differentiating the kinds of businesses invested in can create more security in those investments. Investing should always use money you don’t need right now, as it is a downpayment for a future payout, if all goes well. Successful investing takes time. It is rarely simple, but it is worth it. I recommend finding someone to help you invest, especially if you have never done it before. Finding a financial planner, companies that make it their business to help people invest, or even books on investing are all great places to start on the road to investing. Darren Hardy has a great book about the principles of investment, both with time and money, called The Compound Effect.

We live in a society that rarely thinks about the future and doesn’t plan well, financially, in general. Changing the way you live will take work, but the principles are really very simple.

If you are looking to change the course of where you are headed financially, and you need more help than the very simple tips in today’s post and in my budgeting post, I highly recommend Dave Ramsey’s Complete Guide to Money. Dave Ramsey is a world-renown financial advisor and his books are very easy to understand and follow.

Wanting to know more about the emergency fund? Read our post about why, what, and how here.

Please note that some of the links in this post are Amazon Affiliate links. If you order through these links, your cost will remain unchanged, but our blog will receive a small referral bonus. Thank you for helping support this blog and helping us to continue bringing you fresh content!

How do you get your budget under control? Budgeting is a term that brings fear to the heart of many, but I actually really enjoy budgeting and it has been a mission of mine to make this task less tedious for those who don’t. Budgeting doesn’t have to be scary or uncomfortable, but it can feel that way when your money is in charge. Budgeting is all about making your money work for you.

Successful budgeting starts with a realistic budget. Here are three simple steps to a realistic budget:

Print out this free Monthly Budget printable and write down 10-12 categories of spending. I suggest categories such as Groceries, Household (supplies for the home, such as dryer sheets), Personal (such as toiletries), Gas (for the car), Home (decor), Misc (reoccuring charges, such as oil changes), Health, Fun Fund (such as eating out), Debt, Savings, Tithe (if you don’t directly take 10% off the top before allocating money, which I recommend), and Bills (all monthly bills). Additional categories that may be applicable to your situation include Business, Travel, and Date Night. Be exhaustive and include anything & everything you spend money on. Combine categories as is convenient for you. For example, Groceries is a category I use to cover food, household supplies, and toiletries since I buy them all together.

Next, add how much money you would realistically spend in every category for the month. Make sure you give a good amount- at least $100- to the Misc fund as this is the fund things come out of that might otherwise sneak up on you, such as your car tags, and you want to make sure you budget enough to cover those charges. Be sure to be very realistic when you do this. Add up the charges in your bank account or bank ledger, if need be, to give you a realistic idea of how much you spend per month in the different categories. Make sure to inflate each amount just a bit to give you some wiggle room. At this point, you should have your 10-12 categories lined out with the budgeted amounts next to them.

In the last column, with your total income written at the top, add up all the charges for that month and see how much you spent next to how much you budgeted to spend. You can find your End-of-Month total (income minus all spending) at the bottom. As the purpose of a budget is to allocate your money, you should not go over your amounts. If you do, you either haven’t budgeted enough for that category or you need to rethink your spending habits, but whichever you do is up to you. 😉

There are many great budgeting apps for your phone, as well, if you prefer to do this on your phone, tablet, or computer. All you need is your budget categories and the amounts allotted to each. The most important thing is for you to find a system that works for you to help you allocate your money.

Budgeting does not have to be hard. That being said, budgeting doesn’t happen by accident, and with a bit of work and time, your budget will become your friend and your money will start working for you.

If you are having a hard time getting your budget to match your income, or you just need some good, solid money advice in general, I recommend reading Dave Ramsey’s Complete Guide to Money.

(Disclosure: Some links in this post are Amazon Affiliate links. As such, should you order through those links, we will receive a small commission off your purchase. Thank you for helping support this blog so that we are able to continue bringing you fresh content!)